Vincent Lingga, The Jakarta Post, Jakarta | Headlines | Mon, February 09 2015, 7:48 AM
The idea of a tax amnesty has been in and out of public-policy debate since 2003 or five years after the 1998 political and economic crisis when jittery Indonesian tycoons reportedly rushed overseas billions of dollars in financial assets.
The main objective is to encourage businesspeople who have parked their funds mostly in Singapore to repatriate and plough them back into Indonesia's economy, thereby generating jobs and eventually expanding the tax base.
At first glance, such a facility seemed necessary, but the debates died out on strong public opposition, especially after Boediono took over the leadership of the government's economic team in December 2005. Boediono had strongly opposed the tax amnesty lobbies even when he was finance minister under the Megawati Soekarnoputri administration until late 2004.
Considering the current economic and political conditions, now seems the right time to revive the tax-amnesty concept. The idea is attractive to the government of President Joko "Jokowi"'Widodo, which is strapped for big investment to fund its ambitious programs aimed at spurring growth to over 7 percent from about 5 percent now. The government is also fed up with massive tax evasion, as indicated by the persistently lowest tax ratio in the ASEAN region.
The House of Representatives, where the majority of factions are controlled by political parties chaired by businessmen, certainly loves such a tax pardon. In fact, it was the Indonesian Chamber of Commerce and Industry (Kadin) that aggressively lobbied for that facility between 2003 and 2005.
Their main point of argument is that since the corruption-infested tax directorate general is unable to track tax evaders and uncover their hidden assets, there is no harm in offering them one-shot tax amnesty if the facility can set off massive repatriation of capital.
These proponents also reckon that conglomerates will not hesitate to reinvest in Indonesia to expand the economy and create jobs once their previously hidden assets are declared legitimate under the amnesty program.
The facility also could net a large number of new taxpayers, including small and medium enterprises (SMEs), thereby broadening the tax base for future tax collection. Tax registration will also legitimize SMEs and consequently improve their access to finance.
Then, since the tax court system in the country is perceived to be both corrupt and overburdened, a tax amnesty may allow the tax administration economize on prosecution costs. No wonder, given these potential benefits, many countries, including developed ones, have granted one-shot tax amnesties.
But the opponents of a tax amnesty also have equally strong points against such a scheme, on account of the absence of an efficient, strong tax administration system. The core argument against the tax pardon is that such a facility would mostly benefit the big tycoons, including the former bank owners, who, according to an investigative audit by the Supreme Audit Agency (BPK) in 1999, misused the bulk of the tens of billions of US dollars Bank Indonesia extended in emergency liquidity credits to help bail out the banking industry in 1998
and 1999.
It would gravely insult the public's sense of justice if those tycoons, which had been released from criminal charges under hastily drawn debt-settlement agreements, were granted tax amnesty under a weak and corrupt tax-administration system as it is now.
Such a scheme would virtually allow them to launder their hidden assets.
The opponents argue that despite our desperate need for new private investment, granting an indiscriminate tax amnesty would only damage the credibility of our tax-collection system in the future.
Certainly, big tax evaders who have no good faith in obeying our tax laws would see such tax amnesty only as a once in a lifetime opportunity to get one-shot amnesty for their past tax evasions and debts, and then it will be business as usual under the inefficient and corrupt tax system.
Our tax-administration system is not yet efficient and firm enough to make tax amnesty effective to achieve its main objectives because the facility should be provided through a good mechanism and the tax amnesty period should immediately be followed by strong and consistent law enforcement against tax evaders and manipulators.
Finance Minister Bambang Brodjonegoro said the bold tax measure would be stipulated in the proposed amendments to the General Taxation System Law, which have been put on the priority legislative agenda of the House this year.
The following are several types of tax amnesties that have been implemented in developing and developed countries in the past, including in the United States: one-shot filing amnesty (the waiving of penalties for non-filers who begin filing), record-keeping amnesty (the waiving of penalties for past failure to not maintain statutorily required records provided records now start to be kept), revision amnesty (an opportunity to revise past tax returns without penalty), investigation amnesty (a promise to not investigate the source of incomes disclosed) and prosecution amnesty( immunity from prosecution for detected offenders).
Without clear and credible commitment to administrative reform, an amnesty may signal the weak enforcement capacity of the tax administration, with consequently adverse revenue consequences during and after the amnesty.
A subtle and often neglected signaling effect of an amnesty will impact the workload of the tax administration, given limited administrative resources. The tax directorate general has complained that the number of its tax auditors now is barely one-third of its real need to develop a strong tax-administration system.
The main objective is to encourage businesspeople who have parked their funds mostly in Singapore to repatriate and plough them back into Indonesia's economy, thereby generating jobs and eventually expanding the tax base.
At first glance, such a facility seemed necessary, but the debates died out on strong public opposition, especially after Boediono took over the leadership of the government's economic team in December 2005. Boediono had strongly opposed the tax amnesty lobbies even when he was finance minister under the Megawati Soekarnoputri administration until late 2004.
Considering the current economic and political conditions, now seems the right time to revive the tax-amnesty concept. The idea is attractive to the government of President Joko "Jokowi"'Widodo, which is strapped for big investment to fund its ambitious programs aimed at spurring growth to over 7 percent from about 5 percent now. The government is also fed up with massive tax evasion, as indicated by the persistently lowest tax ratio in the ASEAN region.
The House of Representatives, where the majority of factions are controlled by political parties chaired by businessmen, certainly loves such a tax pardon. In fact, it was the Indonesian Chamber of Commerce and Industry (Kadin) that aggressively lobbied for that facility between 2003 and 2005.
Their main point of argument is that since the corruption-infested tax directorate general is unable to track tax evaders and uncover their hidden assets, there is no harm in offering them one-shot tax amnesty if the facility can set off massive repatriation of capital.
These proponents also reckon that conglomerates will not hesitate to reinvest in Indonesia to expand the economy and create jobs once their previously hidden assets are declared legitimate under the amnesty program.
The facility also could net a large number of new taxpayers, including small and medium enterprises (SMEs), thereby broadening the tax base for future tax collection. Tax registration will also legitimize SMEs and consequently improve their access to finance.
Then, since the tax court system in the country is perceived to be both corrupt and overburdened, a tax amnesty may allow the tax administration economize on prosecution costs. No wonder, given these potential benefits, many countries, including developed ones, have granted one-shot tax amnesties.
But the opponents of a tax amnesty also have equally strong points against such a scheme, on account of the absence of an efficient, strong tax administration system. The core argument against the tax pardon is that such a facility would mostly benefit the big tycoons, including the former bank owners, who, according to an investigative audit by the Supreme Audit Agency (BPK) in 1999, misused the bulk of the tens of billions of US dollars Bank Indonesia extended in emergency liquidity credits to help bail out the banking industry in 1998
and 1999.
It would gravely insult the public's sense of justice if those tycoons, which had been released from criminal charges under hastily drawn debt-settlement agreements, were granted tax amnesty under a weak and corrupt tax-administration system as it is now.
Such a scheme would virtually allow them to launder their hidden assets.
The opponents argue that despite our desperate need for new private investment, granting an indiscriminate tax amnesty would only damage the credibility of our tax-collection system in the future.
Certainly, big tax evaders who have no good faith in obeying our tax laws would see such tax amnesty only as a once in a lifetime opportunity to get one-shot amnesty for their past tax evasions and debts, and then it will be business as usual under the inefficient and corrupt tax system.
Our tax-administration system is not yet efficient and firm enough to make tax amnesty effective to achieve its main objectives because the facility should be provided through a good mechanism and the tax amnesty period should immediately be followed by strong and consistent law enforcement against tax evaders and manipulators.
Finance Minister Bambang Brodjonegoro said the bold tax measure would be stipulated in the proposed amendments to the General Taxation System Law, which have been put on the priority legislative agenda of the House this year.
The following are several types of tax amnesties that have been implemented in developing and developed countries in the past, including in the United States: one-shot filing amnesty (the waiving of penalties for non-filers who begin filing), record-keeping amnesty (the waiving of penalties for past failure to not maintain statutorily required records provided records now start to be kept), revision amnesty (an opportunity to revise past tax returns without penalty), investigation amnesty (a promise to not investigate the source of incomes disclosed) and prosecution amnesty( immunity from prosecution for detected offenders).
Without clear and credible commitment to administrative reform, an amnesty may signal the weak enforcement capacity of the tax administration, with consequently adverse revenue consequences during and after the amnesty.
A subtle and often neglected signaling effect of an amnesty will impact the workload of the tax administration, given limited administrative resources. The tax directorate general has complained that the number of its tax auditors now is barely one-third of its real need to develop a strong tax-administration system.
